New Report: Stemming the Rising Costs of Health Care Through Globalization

Washington, D.C.- As the national debate continues over health care and the long-term budget picture, a report just released by the Center for Economic and Policy Research (CEPR) suggests a substantial savings to both the government and individuals through the globalization of Medicare and Medicaid.

“In the United States, per person health care costs averaged $6,714 in 2006, compared with an average of $2,964 in the 26 nations with longer life expectancies,” said Dean Baker, Co-director of CEPR and an author of the report. “A gap this large suggests significant benefits and gains from trade.”

The report, “Free Trade in Health Care: the Gains from Globalized Medicare and Medicaid,” outlines the potential gains to both the U.S. Government and Medicare and Medicaid beneficiaries that would result if these beneficiaries were allowed to buy into the health care systems of the 26 countries with longer life spans than the United States. This voluntary program would give beneficiaries vouchers to move to another country to take advantage of lower health care costs. These beneficiaries, retired for the most part, are not bound by work to one particular area. Since many beneficiaries have family, business, or other ties to some of these countries, a voucher option may be quite attractive.

“While the U.S. would have to negotiate arrangements with each participating country, the process would be simpler than far-reaching trade agreements like NAFTA, and the potential economic gains would be much larger,” Baker continued.

If 10% of eligible Medicare beneficiaries take advantage of this program, the government would save $8.6 billion a year by 2020, $19.5 billion by 2030, and $288.9 billion by 2085 (all numbers are in 2008 dollars).

If 10% of those eligible for both Medicare and Medicaid opted to take part in the program, the savings to U.S. Government (Federal and State) would be $18.1 billion in 2020, $99 billion in 2045, and $505.3 billion in 2085.

At the state level alone, the savings in 2020 at a 10% take-up rate would be $2.9 billion in 2020, $8.8 billion in 2045, and $27 billion in 2085.

For individuals, the savings would vary from country to country, but would be substantial in most cases. In Spain, beneficiaries would pocket $10,900 in 2020, equal to 61 percent of the Social Security benefit for a medium earner retiring at age 65 in 2020. In Canada, they would get $5,600 a year from taking part in the program, equal to 31.3 percent of a medium earner’s benefit. By 2045, these sums are projected to increase to $26,700 and $22,600 a year, respectively. These gains are, respectively, 22.6 percent and 3.8 percent above projected Social Security benefits for a medium earner retiring in 2045. In 2085 the gains from moving to these two countries would be $74,700 and $77,500, respectively, both more than double the projected Social Security benefits for medium earners retiring in 2085.

The projections from the study clearly show the significant savings to the U.S. Government and potential for increased retirement income for beneficiaries who sign up for a Medicare or Medicaid voucher. The full analysis and further details can be found here.